updated course materials banking in an era of digital

UPDATED Course Materials

BANKING IN AN ERA OF DIGITAL DISRUPTION

JP Nicols Managing Director

FinTech Forge Ellevue, Washington

[email protected] (425)-522-3579

August 3 – 5, 2017

1 Innovation & Differentiation | JP Nicols

@JPNicols

@JPNicols [email protected]

425-522-3579


1)  Thriving in a World of Digital Disruption 2)  Leading Through Change 3)  Differentiation through Innovation


Threat of New Entry

Supplier Power

Buyer Power

Threat of Substitution

Competitive Rivalry

Porter’s Five Forces


Fintech is Hot


The Industry is Not

Innovation Maturity

Level

Number of Organizations

Leaders, Learners and Laggards


30%

20% 18%

16%

10%

4% 1% 2%

18%

26%

23%

13%

9%

6% 4%

1%

Branches near me

Leading online/mobile

No foreign ATM fees

Many branches and

ATMs

ATMs near me Convenient branch hours

Phone Other

Source: Novantas ® 2016 The Financial Brand

2014 2015

What is Convenience?


Experience Level

Tactical Level

Strategic Level


Digital Threat… and Opportunity

-16%

-13%

-6%

-35%

+5%

+10%

30%

+45%

Increased revenue from innovative new offers and business models

Innovative new offers from competitors

Margins

New products, distinctive digital sales, and using data to cross-sell

Increased operational risk

TOTAL

McKinsey Analysis, 2015

Impact of Digital - % Net Profit for Retail Bank

Lower costs


U.S. Smartphone Penetration

6% 11%

17% 27%

42%

54%

65% 75% 79% 81%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: comScore


2010 2011 2012 2013 2014 2015

Mobile Banking vs. Branch Banking (Weekly)

© 2015 GA Javelin LLC

Branches Mobile

40%

30% 29% 30% 28%

24%

9% 9% 11%

22% 27%

30%


Bank of America 2016

18.7 19.6 20.2 21.3 21.6

15% 16% 17%

18% 19%

0%

10%

20%

30%

0

5

10

15

20

25

4Q15 1Q16 2Q16 3Q16 4Q16

Active Mobile Users

Mobile % of Total Deposit Transactions

12x Weekly Mobile

Interactions

Weekly Branch Interactions


Technology Trigger

Peak of Inflated Expectations

Trough of Disillusionment

Slope of Enlightenment

Plateau of Productivity

The Next Big Idea?

The Gartner Hype Curve, 1995


Short-term

Cash

Receivables

Inventory

Long-term

Vehicles

Equipment

Real Estate

Equity/Other

• Reduced Friction • Customer Experience


Early Majority

34%

Late Majority

34% Laggards

16% MIL

Early Adopters

13.5% Innovators

2.5%

Chasm

Diffusion of Innovation Everett Rogers, 1957

Geoffrey Moore, 1993


Early Majority

34%

Late Majority

34% Laggards

16%

Early Adopters

13.5% Innovators

2.5%

Technology Trigger

Peak of Inflated Expectations

Trough of Disillusionment

Slope of Enlightenment

Plateau of Productivity

Chasm

Financial Services


Launch

Growth

Decline

Innovation

Innovation

Paul Nunes & Tim Breene, 2011

Bank Business Cycle (adjusted for interest rate

and economic cycles)

Jumping the S Curve


Consumers Trust Banks …and Fintechs

0% 20% 40% 60% 80% 100%

Banks

Fintechs Completely

Somewhat

Capgemini/EFMA World Retail Banking Report, 2016

90%

96.4%


Willingness to Refer

Banks

Fintechs

Capgemini/EFMA World Retail Banking Report, 2016 (North America)

63.7%

50.5%


89.1%

74.3%

68.3%

49.5%

39.6% 35.6%

26.7%

81.9%

0.0%

76.9%

47.7%

79.6% 81.4%

63.5%

54.8%

Ease of Use Speed to Market Lower Fees Social Media Integration

Good Service/Experience

Quick Turnaround/Faster Service

Personalized Service/More

Features

Lack of Service by Primary Bank


Bankers Customers

Why do Customers Like Fintechs?


39.6% 35.6%

26.7%

79.6% 81.4%

63.5% 54.8%

Good Service/Experience

Quick Turnaround/Faster Service

Personalized Service/More Features

Lack of Service by Primary Bank


Bankers Customers


Temperament Role Role Variant

Concrete or Abstract?

Cooperative or Utilitarian? Informative or Directive? Expressive or Attentive?

Observant

(S)

Guardian (SJ)

Conservator (SFJ) Supporting

Provider (ESFJ): Supplying

Protector (ISFJ): Securing

Administrator (STJ) Regulating

Supervisor (ESTJ): Enforcing

Inspector (ISTJ): Certifying

Artisan (SP)

Entertainer (SFP) Improvising

Performer (ESFP): Demonstrating

Composer (ISFP): Synthesizing

Operator (STP) Expediting

Promoter (ESTP) Persuading

Crafter (ISTP): Instrumenting

Introspective

(N)

Idealist (NF)

Advocate (NFP) Mediating

Champion (ENFP): Motivating

Healer (INFP): Conciliating

Mentor (NFJ) Developing

Teacher (ENFJ): Educating

Counselor (INFJ): Guiding

Rational (NT)

Engineer (NTP) Constructing

Inventor (ENTP): Devising

Architect (INTP): Designing

Coordinator (NTJ) Arranging

Fieldmarshal (ENTJ): Mobilizing

Mastermind (INTJ): Entailing


Kaizen Model

Standards

Improvement

Innovation

Front Line

Supervisors

Middle Mgmt

Senior Mgmt


Clear, compelling

case for change

Demonstrated leadership

commitment

Clear WIFM for all

Concrete implementation

plan Reinforcement

Skills, knowledge, tools

in place


commitment

Clear WIFM for all


plan Reinforcement


in place

Clear, compelling

case for change

Clear WIFM for all


plan Reinforcement


in place

Clear, compelling

case for change


commitment


plan Reinforcement


in place

Clear, compelling

case for change


commitment

Clear WIFM for all

Reinforcement Skills,

knowledge, tools in place

Clear, compelling

case for change


commitment

Clear WIFM for all


plan Reinforcement

Clear, compelling

case for change


commitment

Clear WIFM for all


plan


in place

“See It” “Own It” “Do It”

Moving from Strategy to Results through People - @1999 AchieveGlobal

“It’s not urgent”

“It’s not real”

“It’s not worth it”

“It’s not going anywhere”

“It’s not possible”

“It’s not for long”

“It’s working!”


Low Directive Behavior High

Low

S

upp

ort

ive

Be

havi

or

Hig

h

Hersey and Blanchard, c.1975

Delegating

Supporting

Directing

Coaching

Situational Leadership


Innovation is implementing new ideas that create value.


Current Financials

Growth Rate

Material

Not Material Low High

Escape Velocity, Geoffrey Moore, 2011


Minimum Viable Product (MVP)

Must be able to test along the way

Iterations help build value at every stage

Not this…

But this!


Plan your Work, Work your Plan.

Lean Startup

Build

Measure Learn

The Lean Startup, Eric Ries, 2011


Customer Relationship Management

Product Innovation

Infrastructure Management


Product Innovation



Economics Early Market entry enables premium prices and acquiring large market share; speed is key.

High cost of customer acquisition makes it imperative to gain large wallet share; economies of scope are key.

High fixed costs make large volumes essential to achieve low unit costs; economies of scale are key.

Competition Battle for talent; low barriers to entry; many small players thrive

Battle for scope; rapid consolidation; a few big players dominate

Battle for scale; rapid consolidation; a few big players dominate

Culture Employee centered; coddling the creative stars

Highly service oriented; customer-comes-first mentality

Cost focused; stresses standardization, predictability, and efficiency

Hagel and Singer, 1999




Product Innovation

Efficiency/ Renewal Strategies

Growth Maturity Decline




Product Innovation

Efficiency/ Renewal Strategies

Disruptive Innovation

Application Innovation

Value Engineering Innovation

Integration Innovation

Process Innovation

Value Migration

Innovation

Product Innovation

Platform Innovation

Line Extension

Innovation

Enhancement Innovation

Marketing Innovation

Experiential Innovation

Renewal Innovation

Acquisition Innovation

Adapted from Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution, by Geoffrey Moore, 2005

34 Innovation & Differentiation | JP Nicols Adapted from Dealing with Darwin, Geoffrey Moore, 2005

Product Leadership

Disruptive Innovation Horseless Carriage, Napster, iTunes

Application Innovation Delivery vans, Desktop Publishing

Product Innovation Auto transmission, Hybrid engines

Platform Innovation Assembly line, Microsoft Windows

Customer Intimacy

Line-Extension Innovation SUVs, ESPN2

Enhancement Innovation Anti-lock brakes, airbags,

Marketing Innovation Ford Mustang, Tesla, IKEA

Experiential Innovation Lexus, Tesla, Uber, Disney

Operational Excellence

Value-Engineering Innovation Toyota, Hyundai, Flat screen TVs, computers

Integration Innovation Printer/scanners, Mutual funds

Process Innovation Toyota, Dell, IKEA

Value-Migration Innovation Uber, Salesforce

Category Renewal

Organic Innovation IBM, Apple

Acquisition Innovation Cisco, Daimler (Car2Go)


Horizon 1 Extend and

Defend Core Businesses

Horizon 2 Build

Emerging Businesses

Horizon 3 Create Viable

Options


Innovation Investments

Markets

Products and Services

70%

10%

20%

New

Existing New Monitor Group, 2012

“Google Ratio”


Standardized Process Specialized

Low

To

uc

h

Int

ima

cy/

EQ

Hig

h T

ou

ch

Execution Diagnosis

Adapted from True Professionalism

© 1997 David H. Maister, used by permission



Low

To

uc

h

Int

ima

cy/

EQ

Hig

h T

ou

ch

Execution Diagnosis



•  Product Advice •  Onboarding •  Fiduciary •  Complex issues •  Small Business

•  Relationship Management •  Strategic Planning •  Nonfinancial Advice

•  Custom Credit •  Asset Mgmt •  Trust Admin •  Corp Banking •  ABL •  Syndications

•  Basic Service •  Statements •  Std. products •  Transactions •  Item process. •  Payments •  Cards



Low

To

uc

h

Int

ima

cy/

EQ

Hig

h T

ou

ch

Execution Diagnosis



•  Product Advice •  Onboarding •  Fiduciary •  Complex issues •  Small Business

•  Relationship Management •  Strategic Planning •  Nonfinancial Advice

•  Custom Credit •  Asset Mgmt •  Trust Admin •  Corp Banking •  ABL •  Syndications

•  Basic Service •  Statements •  Std. products •  Transactions •  Item process. •  Payments •  Cards

Technology

!  Artificial Intelligence !  Virtual Reality !  Machine Learning !  Deep Learning

!  Data Analytics !  Business Intelligence !  Heuristic Algorithms !  Data Aggregation

Customer Experience


Understand Diverge HypothesisDefine Decide

1 UNDERSTAND user needs, business value and technology capacity

3

DEFINE the problem, key strategy and focus2

DIVERGE from a single potential solution to create diversity of options to explore

4 DECIDE on the most promising ideas from the range of options

5 HYPOTHESIS of a problem statement and solution that can be tested


Business

(Viability)

Technology

(Feasibility)

People

(Desirability)

Design Thinking 101

•  Understanding •  Empathy •  Definition:

•  Pains •  Gains •  Jobs

Dschool.stanford.edu


Gain Creators

Pain Relievers Pains

Gains

Products& Services

CustomerJob(s)

Value Proposition Customer Segment

copyright: Strategyzer AGThe makers of Business Model Generation and Strategyzer

The Value Proposition Canvas

strategyzer.com


Blue Ocean Strategy Map Ringling Brothers and Barnum & Bailey Regional Circuses Cirque du Soleil


•  Substitute •  Combine •  Adapt •  Magnify •  Minimize •  Modify •  Put to other uses •  Eliminate •  Reverse •  Rearrange

SCAMPERR Model


What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?

Through which Channels do our Customer Segments want to be reached? How are we reaching them now?How are our Channels integrated? Which ones work best?Which ones are most cost-efficient? How are we integrating them with customer routines?

For what value are our customers really willing to pay?For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?

For whom are we creating value?Who are our most important customers?

What type of relationship does each of our CustomerSegments expect us to establish and maintain with them?Which ones have we established? How are they integrated with the rest of our business model?How costly are they?

What value do we deliver to the customer?Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment?Which customer needs are we satisfying?

What Key Activities do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue streams?

Who are our Key Partners? Who are our key suppliers?Which Key Resources are we acquiring from partners?Which Key Activities do partners perform?

What Key Resources do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue Streams?

Day Month Year

No.

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Books:

•  Blue Ocean Strategy •  Breaking Banks •  Business Model Generation •  Crossing the Chasm •  Escape Velocity •  The Discipline of Market Leaders •  The Innovator’s Dilemma •  The Innovator’s DNA •  Jumping the S Curve •  The Lean Startup •  Smarter Bank •  Value Proposition Design •  Value Web •  The Wide Lens •  Zone to Win

Blogs/Newsletters:

•  TheFinancialBrand.com: FinServ 25: The Most Influential Voices in Banking

•  Brett King: Banking4Tomorrow.com

•  Chris Skinner: TheFinanser.com

•  Dave Birch: Tomorrow’s Transactions

•  Finovate.com/blog

•  JPNicols.com/blog


Conferences: •  NextMoney.org •  Finovate.com •  Money2020.com

Podcasts: •  Breaking Banks •  Fintech5 •  Freakonomics •  Masters of Scale •  How I Built This •  HBR Ideacast

updated course materials banking in an era of digital

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